St. George Chicago, Inc. v. George J. Murges & Associates, Ltd.

FIFTH DIVISION
May 5, 1998

No. 1-96-3417

ST. GEORGE CHICAGO, INC. and ) Appeal from the
ST. GEORGE INTERNATIONAL, INC., ) Circuit Court of
) Cook County.
Plaintiffs-Appellants, )
)
v. )
) No. 93 L 1576
GEORGE J. MURGES & ASSOCIATES, )
LTD., GEORGE J. MURGES, LANE A. )
CORDAY, and JOHN T. BOWMAN, ) The Honorable
) Kenneth L. Gillis,
Defendants-Appellees. ) Judge, Presiding.

JUSTICE HOURIHANE delivered the opinion of the court:

Plaintiff, St. George International, Inc., leased office
space to the law firm of Murges, Bowman & Corday, Ltd. (MBC).
Following the firm's abandonment of the premises, plaintiff sued
MBC for damages under the lease. The matter was tried to a jury,
which entered a general verdict in favor of plaintiff and awarded
damages of $171,553. The trial court found that the verdict was
inconsistent with the jury's answers to three special inter-
rogatories, which indicated that plaintiff had failed to mitigate
damages, and entered judgment on the special interrogatories in
favor of defendants. Plaintiff appeals.
We reverse and remand for a new trial.
BACKGROUND
Plaintiff leased 3,755 square feet of office space to MBC in
plaintiff's building located at 33 North Dearborn Street in
Chicago. Defendants George J. Murges, Lane A. Corday, and John
T. Bowman each guaranteed MBC's lease obligations. Under the
ten-year lease, which commenced October 1, 1988, MBC was entitled
to a rent abatement for the first 33 months. During this period,
MBC paid only its pro rata share of taxes and operating expenses.
In January 1992, Bowman and Corday left MBC and established
a law firm at another location. Murges remained in the MBC suite
at 33 North Dearborn, but was unable to satisfy MBC's lease
obligations. In April 1992, Murges vacated the leased premises.
On May 12, 1992, plaintiff served MBC with a landlord's
five-day notice, and on August 4, 1992, plaintiff terminated the
lease for non-payment of rent, reserving its right to sue for
damages under the lease. Plaintiff subsequently filed suit for
breach of contract against MBC (now known as George J. Murges &
Associates, Ltd.) and the individual lease guarantors.
Defendants asserted several affirmative defenses, including the
failure to mitigate damages.
Prior to trial, plaintiff moved, pursuant to section 2-
1005(d) of the Code of Civil Procedure (Code) (735 ILCS 5/2-
1005(d) (West 1996)), for a summary determination that the
damages formula in section 21.06 of the lease satisfied its duty
to mitigate damages. Section 21.06 states:
"In the event of the termination of this
Lease by Landlord as provided for by subparagraph
(a) of Section 21.02 or otherwise, Landlord shall
be entitled to recover from Tenant all Monthly
Base Rent and Operating Expense Adjustments
accrued and unpaid for the period up to and
including such termination date, as well as all
other additional sums payable by Tenant hereunder.
In addition, Landlord shall be entitled to recover
as damages for loss of the bargain and not as a
penalty the sum of (x) the unamortized cost to
Landlord, computed and determined in accordance
with generally accepted accounting principles, of
any tenant improvements, provided by Landlord at
its expense, (y) the aggregate sum which at the
time of such termination represents the excess if
any of the present value of the aggregate Monthly
Base Rent and Operating Expense Adjustments at the
same annual rate for the remainder of the Term as
then in effect over the then present value of the
then aggregate fair rental value of the Premises
for the balance of the Term, immediately prior to
such termination, such present worth to be
computed in each case on the basis of a three
percent (3%) per annum discount from the
respective dates upon which rentals would have
been payable hereunder had the Term not been
terminated and (z) any damages in addition
thereto, including reasonable attorneys' fees and
court costs, which Landlord shall have sustained
by reason of the breach of any of the covenants of
this Lease other than for the payment of Rent."
(Emphasis added.)
The trial court denied plaintiff's motion for summary
determination, finding in part that section 21.06 is ambiguous
and must be construed against plaintiff.
At trial, plaintiff sought to recover $340,264.64 in
damages: $33,069.72 for unpaid rent for April through July 1992;
$78,712.92 for unamortized tenant improvements; and $228,482 for
the "rent differential" pursuant to section 21.06 of the lease.
The jury returned a verdict in favor of plaintiff, awarding
damages only on plaintiff's rent differential claim in the amount
of $171,553. The jury also answered three special inter-
rogatories, each indicating that plaintiff had failed to mitigate
damages. The trial court granted defendants' motion for judgment
on the special interrogatories and denied plaintiff's subsequent
motion for judgment notwithstanding the judgment entered on the
special interrogatories or in the alternative for a new trial.
Plaintiff appeals. 155 Ill. 2d R. 301.
ANALYSIS
Preliminarily, we consider the motion of defendants Bowman
and Corday to strike plaintiff's statement of facts as not in
conformity with Supreme Court Rule "341(6)". 155 Ill. 2d R.
341(e)(6). Defendants do not elaborate in what respect the
statement of facts is improper or specify the offending portions.
Accordingly, the motion will be denied. To the extent plaintiff
has failed to provide adequate record citations or engaged in
improper argument, such statements will be disregarded. See
Rockford Metropolitan Exposition Auditorium & Office Building
Authority v. Illinois State Labor Relations Board, 224 Ill. App.
3d 1007, 1012, 586 N.E.2d 1361 (1992).
Plaintiff requests that the judgment be reversed and the
cause remanded for entry of judgment in favor of plaintiff for
the full amount of its damages. Alternatively, plaintiff asks
that the jury verdict be reinstated, or that the judgment be
vacated and the case remanded for a new trial. Although
plaintiff claims numerous errors by the trial court, the gravamen
of its appeal is that the trial court erred when it ruled that
the provisions of section 21.06 of the lease did not, as a matter
of law, satisfy plaintiff's duty to mitigate damages. We agree.
Because the case was tried under an incorrect theory of law,
the appropriate action is to reverse and remand for a new trial,
which we do. Sparling v. Peabody Coal Co., 59 Ill. 2d 491, 496,
322 N.E.2d 5 (1974); Gilbert's Ethan Allen Gallery v. Ethan
Allen, Inc., 251 Ill. App. 3d 17, 29-30, 620 N.E.2d 1349 (1993).
A.
Section 9-213.1 of the Code provides that "a landlord or his
or her agent shall take reasonable measures to mitigate the
damages recoverable against a defaulting lessee." 735 ILCS 5/9-
213.1 (West 1996).
Plaintiff argues that the damages calculation under section
21.06 of the lease satisfies its statutory duty to mitigate
damages because it assumes that a replacement tenant took
possession of the premises immediately upon termination of the
lease, and at a rent equal to the then prevailing market rate.
Thus, plaintiff maintains that section 21.06 removes any risk
that despite reasonable efforts to mitigate, plaintiff will be
unable to relet the premises. According to plaintiff, because
section 21.06 credits the tenant with the maximum amount of
mitigation possible, plaintiff's actual efforts to relet the
premises are irrelevant. Defendants maintain that the trial
court properly rejected this argument.
Preliminarily, and without regard to whether section 21.06
satisfies plaintiff's duty to mitigate, we consider whether, as
the trial court determined, section 21.06 is ambiguous. A
contract will be deemed ambiguous if its language is susceptible
of more than one reasonable interpretation. Farm Credit Bank of
St. Louis v. Whitlock, 144 Ill. 2d 440, 447, 581 N.E.2d 664
(1991); United States Fidelity & Guaranty Co. v. Wilkin
Insulation Co., 144 Ill. 2d 64, 74, 578 N.E.2d 926 (1991). A
contract is not "ambiguous" merely because the parties disagree
as to its meaning. Ford v. Dovenmuehle Mortgage, Inc., 273 Ill.
App. 3d 240, 244, 651 N.E.2d 751 (1995). On appeal, this court
considers the issue de novo, and makes an independent review of
the contract to determine whether there is only one fair and
reasonable interpretation. Ford, 273 Ill. App. 3d at 244-45.
Section 21.06 provides that upon termination of a defaulting
tenant's lease, plaintiff is entitled to recover the following
amounts: (1) unpaid rent and operating expenses through the date
of termination of the lease; (2) unamortized cost of tenant
improvements; (3) an amount which plaintiff has termed "rent
differential"; and (4) attorney fees and courts costs.
It is the third component of damages, the so-called "rent
differential", that is at issue. This component of damages is
described in the lease as:
"[T]he aggregate sum which at the time of such
termination represents the excess if any of the
present value of the aggregate Monthly Base Rent
and Operating Expense Adjustments at the same
annual rate for the remainder of the Term as then
in effect over the then present value of the then
aggregate fair rental value of the Premises for
the balance of the Term, immediately prior to such
termination, such present worth to be computed in
each case on the basis of a three percent (3%) per
annum discount from the respective dates upon
which rentals would have been payable hereunder
had the Term not been terminated ***."
Plaintiff argued before the circuit court, and we agree,
that the foregoing lease provision entitles the landlord to
recover the present value of the lease rent over the unexpired
lease term, less the present value of the fair rental value,
i.e., the fair market rent, over the unexpired lease term. We
can discern no other reasonable interpretation to this contract
language and defendants offer none.
We next consider whether section 21.06 satisfies plaintiff's
statutory duty to mitigate damages. Because this raises a
question of law, review by this court is de novo. Oak Park Trust
& Savings Bank v. Village of Mt. Prospect, 181 Ill. App. 3d 10,
19, 536 N.E.2d 763 (1989).
The purpose of section 9-213.1 of the Code is to require
landlords to make reasonable efforts to relet the premises
following a tenant's departure, rather than allowing the premises
to stand vacant and the landlord to collect rent in the form of
damages. M X L Industries, Inc. v. Mulder, 252 Ill. App. 3d 18,
31, 623 N.E.2d 369 (1993); J M B Properties Urban Co. v.
Paolucci, 237 Ill. App. 3d 563, 568, 604 N.E.2d 967 (1992).
Theoretically, a defaulting tenant's exposure can be virtually
extinguished if the landlord is successful in reletting the
premises immediately upon the tenant's departure and at the same
lease rate. However, such a result is unlikely where long-term
commercial leases, subject to market fluctuations, are involved.
For example, a glut of office space may cause lease rates in an
area to drop, thus precluding a landlord, despite diligent
efforts, from reletting the premises at the same rate. Thus, the
best result that a defaulting tenant can ever expect is that the
landlord is successful in immediately reletting the premises at
the then prevailing market rate.
Section 21.06 of the lease makes this best case scenario a
certainty by limiting plaintiff's claim for lost rent to the
excess, if any, of the lease rate over the market rate for the
unexpired lease term. Thus, section 21.06 accomplishes precisely
what the statute intended, but without any of the risk to
defendants that plaintiff's otherwise reasonable efforts to relet
might nonetheless prove unsuccessful.
The circuit court, however, determined that section 21.05 of
the lease addresses mitigation of damages, not section 21.06, and
that the former is contrary to section 9-213.1. Section 21.05
states in relevant part:
"In the event Landlord terminates the right of
Tenant to possession of the Premises without
terminating this Lease as aforesaid, Landlord may,
but shall be under no obligation to, relet the
Premises or any part thereof for the account of
Tenant ***."
We agree that section 21.05 addresses mitigation of damages.
However, this section applies only where a tenant is dispossessed
of the premises. Section 21.06 governs the situation present
here, where the landlord has terminated the lease following the
tenant's abandonment of the premises. Thus, whether section
21.05 is contrary to law is irrelevant to our determination of
the legal effect of section 21.06.
Based on the foregoing, we conclude that the damages
calculation set out in section 21.06 of the lease satisfies
plaintiff's statutory duty to mitigate damages, but only as to
the period covered by plaintiff's rent differential claim, i.e.,
the post-termination period from August 4, 1992, through the
balance of the lease term. As to this period, plaintiff's actual
efforts in mitigation are irrelevant and should not have been an
issue at trial. Rather, the only factual issue that should have
been tried relative to plaintiff's rent differential claim was
the "fair rental value" at the time of termination of the lease.
As to the four-month pre-termination period beginning in
April, 1992, when Murges vacated the premises and purportedly
ceased paying rent, section 21.06, by its own terms, does not
apply. Thus, as to this period, for which plaintiff seeks the
full rent of approximately $8,260 per month, plaintiff must
demonstrate actual reasonable measures to mitigate damages. We
will not speculate as to what constitutes "reasonable measures"
during the period immediately following a tenant's abandonment of
premises covered by a long-term commercial lease. That
determination is best made by the trier of fact. See M X L
Industries, Inc., 252 Ill. App. 3d at 31.
B.
We consider three additional issues which are likely to
arise on remand. The first issue is whether, as defendants
contend, a landlord's failure to mitigate damages precludes any
recovery by the landlord or, whether, as plaintiff argues, the
failure to mitigate merely reduces the landlord's damage award.
Defendants cite the second district case of Snyder v. Ambrose,
266 Ill. App. 3d 163, 639 N.E.2d 639 (1994), in support of their
position.
In Snyder, the landlord sued his tenant for unpaid rent.
The trial court granted the landlord's motion in limine to bar
defendant from raising any affirmative defense, since tenant had
failed to file an answer. During trial, the tenant sought to
question plaintiff as an adverse witness as to the efforts
plaintiff made to mitigate damages, arguing that the failure to
mitigate is not an affirmative defense. The trial court
sustained plaintiff's objection, ruling that section 2-613 of the
Code (735 ILCS 5/2-613 (West 1992)) bars any defense, affirmative
or not, which would likely take the opposite party by surprise if
not pleaded. The landlord prevailed in his claim for rent. On
appeal, the second district appellate court reversed:
"Not requiring evidence, let alone proof,
regarding the plaintiff's mitigation of damages
was prejudicial error. By statute, a landlord has
a duty to mitigate the damages recoverable against
a defaulting lessee ***. To hold that the
plaintiff landlord would be surprised to have to
prove something which, by statute, he or she owes
an affirmative duty to do strains credibility."
Snyder, 266 Ill. App. 3d at 165.
Thus, the Snyder court departed from the general rule that
mitigation of damages must be pleaded and proved by the defendant
(see, e.g., Rozny v. Marnul, 43 Ill. 2d 54, 73, 250 N.E.2d 656
(1969)) and held that the burden of establishing mitigation
should be shouldered by the plaintiff landlord. Snyder, 266 Ill.
App. 3d at 166. The court went on to state that "[b]ecause proof
of mitigation was necessary for the plaintiff to prevail and no
evidence was presented relative thereto", reversal of the
judgment was warranted and the cause was remanded for further
proceedings. Snyder, 266 Ill. App. 3d at 166. Snyder has been
construed as establishing a burden upon the landlord to prove
mitigation of damages as a "prerequisite" to recovery. St. Louis
North Joint Venture v. P & L Enterprises, Inc., 116 F.3d 262, 265
(7th Cir. 1997).
We agree with the Snyder decision that the landlord is in
the best position to come forward with evidence of its reasonable
efforts in mitigation and should therefore bear the burden of
proof. However, to the extent Snyder may be read as requiring
such proof as a "prerequisite" to recovery, we disagree.
Generally, the doctrine of mitigation of damages "imposes a
duty upon the injured party 'to exercise reasonable diligence and
ordinary care in attempting to minimize the damages after injury
has been inflicted.'" Grothen v. Marshall Field & Co., 253 Ill.
App. 3d 122, 128, 625 N.E.2d 343 (1993), quoting Black's Law
Dictionary 904 (5th ed. 1979). Thus, where an injured party,
through his own negligence or wilfulness, permits his loss to be
unnecessarily enhanced, the increased loss will be borne by the
injured party. Culligan Rock River Water Conditioning Co. v.
Gearhart, 111 Ill. App. 3d 254, 258, 443 N.E.2d 1065 (1982). In
other words, losses which could have been reasonably avoided are
not recoverable. Nancy's Home of the Stuffed Pizza, Inc. v.
Cirrincione, 144 Ill. App. 3d 934, 941, 494 N.E.2d 795 (1986);
Culligan, 111 Ill. App. 3d at 258.
Although the doctrine of mitigation of damages is said to
impose a "duty" upon the injured party, this is not entirely
accurate. As explained in the Restatement (Second) of Contracts:
"It is sometimes said that it is the 'duty'
of the aggrieved party to mitigate damages,
but this is misleading because he incurs no
liability for his failure to act. The amount
of loss that he could reasonably have avoided
by stopping performance, making substitute
arrangements or otherwise is simply
subtracted from the amount that would
otherwise have been recoverable as damages."
Restatement (Second) of Contracts 350,
Comment b., at 127 (1979).
See also Wired Music, Inc. v. Clark, 26 Ill. App. 2d 413, 416,
168 N.E.2d 736 (1960). Thus, mitigation concerns the measure of
damages, not the legal right to recover damages.
The principal that the failure to mitigate damages acts
merely to reduce the damages otherwise recoverable has been
applied in cases involving a landlord's action for unpaid rent.
Scheinfeld v. Muntz TV, Inc., 67 Ill. App. 2d 8, 16-7, 214 N.E.2d 506 (1966); Hinde v. Madansky, 161 Ill. App. 216, 220 (1911).
See also Wanderer v. Plainfield Carton Corp., 40 Ill. App. 3d
552, 556, 351 N.E.2d 630 (1976) (applying the contract measure of
damages in cases of breach of lease).
Although Scheinfeld, Hind, and Wanderer all predate section
9-213.1, there is nothing in the statute which suggests that the
legislature intended to depart from the common law and work a
forfeiture of the landlord's right of recovery.
Accordingly, on remand, it is plaintiff's burden to come
forward with evidence demonstrating that it took reasonable
measures to mitigate damages during the pre-termination period.
Should it be determined that plaintiff failed to so mitigate,
plaintiff's damage claim for this period will not be barred.
Rather, the damages otherwise recoverable will merely be reduced.
C.
The second issue we consider which is likely to arise on
remand concerns the October, 1992, sale of plaintiff's building
at 33 North Dearborn. At trial, plaintiff submitted a memorandum
of law in support of its position that the subject sale did not
affect the damages it may recover, along with a proposed jury
instruction reflecting the same. The trial court refused the
instruction but never determined what effect, if any, the sale
had on plaintiff's claims. Thus, defendants' counsel argued to
the jury that, based on "common sense", plaintiff cannot claim
any damages after the building was sold.
Plaintiff contends, and we agree, that the trial court erred
by allowing the jury to decide what is unquestionably a matter of
law involving, at a minimum, an interpretation of the purchase
and sale documents and in particular, the "Assignment and
Assumption of Leases and Contracts" referenced in the record and
the briefs. Because this issue was never fully considered by the
trial court, on remand the court is instructed to make a specific
finding as to the legal effect of the sale of the building on
plaintiff's claims for damages.
D.
Finally, plaintiff asserts that defendants' jury demand
should have been stricken. Although the lease agreement contains
a jury waiver provision, plaintiff failed to object to the jury
demand until the day of trial, over three years after the demand
was filed, and after the court spent several weeks considering
motions in limine and other pre-trial matters. Where, as here, a
party's conduct is inconsistent with a contractual term, a waiver
of such provision may be inferred. Barker v. Leonard, 263 Ill.
App. 3d 661, 663, 635 N.E.2d 846 (1994); Wagner Excello Foods,
Inc. v. Fearn International, Inc., 235 Ill. App. 3d 224, 232, 601 N.E.2d 956 (1992). Accordingly, the trial court did not err in
refusing to strike defendants' jury demand.
CONCLUSION
For the foregoing reasons, we reverse the judgment of the
circuit court and remand this matter for a new trial consistent
with this court's rulings.
Reversed and remanded.